GreenTree Hospitality Group Ltd. (NYSE:GHG) Q3 2023 Earnings Call Transcript

We begin to open more street stores. And the CapEx at the very beginning the investment and profitability from the — it was much better than before. And for [Luca], we can see the trend — the profitability trend was always stable. So that’s why in the third quarter we also — for the Luca brand, it also makes money, okay? So your second question is about the fourth quarter. Yes, after entering October, yes, we can find yet the profitability with a little downwards than the third quarter. Yes. However, for Da Niang brand, just as we — I just explained because of the model — of our franchise model has begun to be adopted. So we can expect the profitability of Da Niang brands in the fourth quarter as well, although the sales — I mean the revenues decreased much year-over-year speaking, okay?

Alex Xu: The future margin, Simon, that we projected, that will slightly — will continue to improve the margin, and we hope that the previous margin we generated will achieve that — in that level with the increase of our brand quality overall in terms of products and services, we’ll continue to do, I think, a better drop in that area. And secondly, due to the market competition, we also lowered some of our fees to our franchisees, such as reservation fees, such as the supporting fees in other areas. And therefore, on the top line level, we’ll see a slight impact, which will also impact our margin, but we’ll continue to improve the internal productivity and efficiency and also using the system, improve the management efficiency, so to go back to achieve the optimum margin. So that is our goal. So we have observed, we still need — I think considering the uncertainty and we have to work really hard to achieve that.

Simon Cheung: Can I just double check — one more follow-up question, I guess. The fact that you think that you have been lowering your fee for franchisee in order to get more sign-up, is that what you’re saying? So that you are now expecting a step-up on your new hotels sign up that is a function of — because from our perspective, I thought that the market environment has actually been very conductive to new hotel signing. But yes, did you say that you lower your fee or something? How competitive is the market is to be, just more broadly?

Alex Xu: We are not talking about the sign-up fees that — the sign-up for new hotels. We’re considering the supporting of our existing franchisees by lowering certain ongoing like central reservation fees and various fees. Because a number of our franchisee restaurants they still have a fair amount of obligations accumulated from the past 3 years. So in other words, we not only have the current obligations, the rents, salaries and there — the current incurring immediate payments. They also have to go back to deal with the liabilities like most of the hotel and restaurant business accumulated from the past 3 years. So as we have shared with you the strengths and also the key value system of the GreenTree is to help our franchisees to achieve their profitabilities.

So we feel it is still urgent for us to help them and to increase their own profitability by adjusting some of our ongoing while continue to maintain our healthy profit margin. And with the sign-up initial application fees, I think that in the market overall, there is a downward trend in that area. So — and that is given. So I think the — it’s going to — is going to be a very, very — both the market has full of opportunities in this hotel segment as well as there are also that more brands and companies are competing in this area. So that is the — that is current our own assessment segment, Simon.

Simon Cheung: Sorry, can I just — just to clarify. So you’re saying that you lowered the fee, is that only for restaurants? I think was it restaurant only? Or is it in general, wherever you see difficulty, whether it’s a hotel and restaurant, you generally have lower your fee across the board and how does that?

Alex Xu: No. This is — we’re only talking about the hotel sector for the centralized reservation fees. For the restaurants, it is more — the market is very more dynamic and fluent in a way. Because traditionally, a lot of our restaurants, for instance, like Da Niang Dumplings are located in the supermarket anchored local shopping malls. And the traffic to those supermarket malls are down significantly. So the consumer behavior assumes trend in that area. So as a result, we are rebalancing the mixed. So by focusing on opening in a more stable traffic area, more street front stores — street stores. And while that closing down, those, I think, are primarily the reason in the last 12 months, we closed the 80 slowdown traffic areas restaurants.

But we think that with the repositioning of the restaurant locations, increase the food quality and both of our brands, we will continue to achieve the profitability. I think that’s very, very important in the restaurant sector and then try to take advantage of the new market opportunities to provide a healthy and value-driven tasty food for our customers.

Operator: [Operator Instructions] The next question is from [indiscernible] Capital.

Unidentified Analyst: Firstly, congratulations on the excellent performance in the third quarter. Could you give a separate update on the recovery of the hotel and the restaurant business in the third quarter?